U.S. Income and Social Security Taxation of Foreign Teachers and Students: Taxation of F1 and J1 Visa Holders

A severe shortage of qualified teaching professionals has led to an influx of aliens from abroad. A J-1 visa allows a teacher to reside in the U.S. for three years, or longer if an extension is granted. An international student wishing to study in the U.S. can apply for an F-1 visa.

The substantial presence test determines whether a non-permanent resident visa holder is a resident for U.S. tax purposes. Individuals present in the U.S. for U.S. 31 days in the current year and 183 days during the three-year period including the current and two preceding years (with greater weight given to the more current years), may be considered a U.S. tax resident and subject to U.S. income tax on their worldwide income. Certain teachers, trainees, and students are considered “exempt individuals”, and their days of presence in the U.S. are not counted for purposes of determining substantial presence which means that they are only subject to U.S. income taxation on their U.S. source income. In addition, certain payments received by teachers, trainees, and students may be exempt from U.S. income tax depending on the source of the payments.

Generally speaking, individuals receiving wages for performing services in the U.S. are liable for Social Security and Medicare taxes regardless of residency status. However, nonresident teachers and researchers working in the U.S. who have been in the U.S. for less than two years can qualify for exemption from these taxes due to the interplay between IRC Sections 7701(b) and 3121(b). Additionally, students on F-1 visas are generally not subject to Social Security or Medicare withholdings during their educational period. If necessary, taxpayers can file Form 843, Claim for Refund and Request for Abatement, to request a refund of amounts erroneously withheld.

These are unique tax considerations for teachers and students residing in the U.S. Tax practitioners working with multinational taxpayers need to grasp the income and Social Security tax requirements of these individuals.

Listen as our panel of distinguished international tax professionals explains the specifics of U.S. income and employment tax liability for F-1 and J-1 visa holders.

1. Introduction
2. General residency rules
3. Lawful permanent resident
   • Substantial presence test
   • General rules
4. Limitations for teachers and trainees
5. Social Security and Medicare contribution rules

The panel will cover these and other critical issues:

• The substantial presence test as applied to teachers and students
• The two out of six-year exemption rule under the substantial presence test for certain teachers and trainees
• The five-year exemption rule for certain students
• Under what circumstances may compensation received by teachers, students, and trainees be exempt from U.S. income tax
• Under what circumstances are teachers, trainees, and students exempt from Social Security taxes
• Applying for a refund of Social Security and Medicare taxes paid erroneously

Learning Objectives

After completing this course, you will be able to:

• Identify exceptions for certain visa holders to the substantial presence test
• Determine when the two of six year rule can be extended to four relative to the substantial presence test exemption
• Ascertain when a student or teacher may need to file Form 843 to claim a refund of Social Security taxes paid
• Decide how income tax and employment tax rules apply to F and J visa holders

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of international taxation including residency determination, foreign entity classifications, application of treaty benefits, as well as GILTI, Subpart F, and the related Section 250 deductions.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).